Monday, September 29, 2008

Suze Orman Could Use a Lesson in Economics

Suze Orman, middle America's favorite financial Advisor, has become the poster child of the Federal Deposit Insurance Corporation. She was on the Today Show on NBC singing the organization's praises and assuring Americans that the government is coming to the rescue in light of the current financial crisis on Wall Street. And it appears she is on the agency's payroll, since she dominates its' MyFDICInsurance.gov home page.

In light of the chaotic frenzy both Wall Street and Main Street are in, it would be nice to have a calming voice. That is exactly the role she tried to play, although I will say she looked extremely stressed out while trying to make her case.

My biggest concern came when the interviewer asked about the economic impact of people having their accounts insured. Orman pointed out that if you have $100,000 in a FDIC insured account, that money is safe. That statement is largely true. But the interviewer than asked "what if this leads to thousands of people needing to cash in on the insurance?" Orman's answer was something to effect that "Americans have nothing to be concerned about, the US Government has a check book and will pay for every account that is covered by the agency. Taxpayers will never have to pick up the bill." That was quite a mouthful.

First of all, that agency (like all government agencies) exists due to taxpayer funding. All taxpayers have already paid into it.

Secondly, and more importantly, is the high costs behind the "checkbook" she spoke so warmly about it. If the costs of accounts going bad exceeds the amount of money in the agency's budget (a very real possibility in light of our current crisis), the government will likely fund (at least) some of it through the simple printing of money. Essentially printing counterfeit dollars to pay for the program. As government prints new money, without an increase in productivity, the value of all money goes down. This is the definition of inflation, which is the worse tax program of all.

I have actually been a fan of Suze Orman and still believe she has advice that is helpful to many Americans. However, this interview on Today makes me question either the extent of her honesty (because of how outrageous her statements are) or the extent of her knowledge (because she should know better). At the very least it would make sense for her to get a basic refresher course in economics.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.
Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

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